BHP projects in doubt after CEO’s comments

There is uncertainty over whether BHP Billiton will proceed with its last remaining planned expansion projects after comments from newly appointed chief executive Andrew Mackenzie.

The projects include the $US12 billion ($12.44bn) Jansen potash project in Canada and the mega-pot at the Cannington silver and base metals mine near McKinlay in northwest Queensland.

Mackenzie’s comments came in meetings with investors in Sydney on Wednesday and cast misgivings about a near-term commitment to Jansen.

The company’s interest in the Cannington mega-pit is also shaky after a cost-cutting measure was broadened and resulted in the termination of apprenticeship positions by a contractor to BHP, The Australian reported.

In the first meeting with Australian investors, Mackenzie reemphasised his strategy to cut capital expenditure from $US22 billion this year to $US18 billion in 2014, cutting to $US15 billion over the subsequent two to three years.

The company said it will continue cutting operating and overhead costs in the wake of a strong Australian dollar, falling commodity prices and rising costs.

A host of companies have been reviewing their revenue forecasts following the mining slump including diversified engineering firm UGL.

It cut its underlying net profit after tax to approximately $90 million, compared to last year’s $168 million.

Following his appointment as CEO of BHP earlier this year, Mackenzie said substantial cuts will be made in 2015 and 2016.

His announcement came shortly after Rio Tinto’s new boss Sam Walsh also announced the company will implement a host of cost cutting measures.

Mackenzie also took a 25 per cent slashing to his annual salary compared to his predecessor Marius Kloppers.

He also said Jansen’s approved expenditure is set to finish over the next few months and would need to be ‘refreshed’ if more work is to happen.

Analysts have interpreted Mackenzie’s comments to mean the potash project could be abandoned.

“While BHP wants to retain it as an option, we felt the shelving of the project is imminent, consistent with reducing capex,” JP Morgan analysts said in a note to clients.

UBS analysts on the other hand said Mackenzie had reiterated his previous stance that Jansen could become BHP’s ‘fifth pillar’ after copper, coal, iron ore and petroleum.

In official terms, UBS feels Jansen is still viable and subject to board sanction.

In his meetings, Mackenzie also said he would looking at productivity gains to push costs down, decrease capex and carry on with simplifying the portfolio around the current four pillars.

This casts uncertainty over the long-term prospects of aluminium and nickel within the company.

Mackenzie has been pushing for more productivity and less investment from the time he was appointed as CEO. Speaking the day before his first day on the job, Mackenzie said this would be the focus of the company.

In a move towards austerity, BHP has been reviewing all its contracts.

Apprentices at Cannington have felt the blow, with four positions to be scrapped. There are 23 apprentices at the mine presently across the heavy vehicle, automotive mechanical and electrical trades.

Of this, 16 are employed through the contract apprenticeship manager and training provider MRAEL.

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